Preference knowledge required to credibly evaluate income tax policies

Determine the distribution of individual consumption–leisure preferences and labor-supply responses needed to credibly evaluate and predict the welfare effects of income tax policies within Mirrlees-style optimal income-tax frameworks.

Background

The paper reviews Mirrlees-style optimal income taxation, noting that credible policy evaluation depends critically on knowledge of individuals’ consumption–leisure preferences and the behavioral response of labor supply to taxation.

After surveying theoretical ambiguities and empirical limitations, the author underscores a continuing lack of knowledge about these preferences sufficient to support reliable welfare evaluation of tax policies, thereby identifying a key empirical shortfall for policy analysis.